As the Brexit negotiations drag, the British pound sterling and currency-related ETFs have been rebounding on hopes of extending talks or a second referendum on the United Kingdom’s breakup from the European Union, along with a lower chance of a so-called hard Brexit.
Over the past month, the Invesco CurrencyShares British Pound Sterling Trust (NYSEArca: FXB) increased 1.9% and VelocityShares Daily 4X Long GBP vs. USD (NYSEArca: UGBP) jumped 6.7% as the British pound appreciated to $1.2959.
The sterling continued to strengthen this week after Prime Minister Theresa May revealed “Plan B” for leaving the E.U., a week after British lawmakers rejected her withdrawal deal by a historic margin, the Wall Street Journal reports.
“The market now believes the hard Brexit is off the agenda because that seems to be the only thing the MPs [members of Parliament]are agreed on,” Saker Nusseibeh, chief executive at Hermes Investment Management told the WSJ, referring to the possibility where the U.K. leaves the E.U. without negotiating an agreement, which would weigh on the pound.
Theresea May survives no-confidence vote
Investors also showed renewed confidence after May survived a no-confidence vote in her government, leading some to grow more positive and start dipping into U.K. assets again.
“The removal of this uncertainty around sterling has led to clients who have not been active for months returning to the market,” Russell Lascala, global co-head of foreign exchange trading at Deutsche Bank, told the WSJ, pointing out that pension funds, insurance companies and corporations have resumed buying U.K. equities and government bonds, or gilts.
Related: United Kingdom ETFs: It Will Get Worse Before Things Get Better
British lawmakers will vote next week on amendments that would make a “no-deal” scenario less likely, along with the possibility of allowing Parliament the ability to hold a second referendum, which was put forward by the opposition Labour Party.
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